Condensed balance sheets for Ayayai Company and Blossom Company on January 1, 2023, are as follows: Current assets Plant and equipment (net) Total assets Total liabilities Common stock, $10 par value Other contributed capital Retained earnings (deficit) Total liabilities and equities Ayayai $198,000 495,000 $693,000 $247,500 Blossom $93,500 154,000 $104,500 $38,500 385,000 176,000 137,500 58,300 66,000 (25,300) $693,000 $247,500 On January 1, 2023, the stockholders of Ayayai and Blossom agreed to a consolidation. Because FASB requires that one party be recognized as the acquirer and the other as the acquiree, it was agreed that Ayayai was acquiring Blossom. Ayayai agreed to issue 22,000 shares of its $10 par stock to acquire all the net assets of Blossom at a time when the fair value of Ayayai's common stock was $15 per share. On the date of consolidation, the fair values of Blossom's current assets and liabilities were equal to their book values. The fair value of plant and equipment was, however, $164,000. Ayayai will incur $22,000 of direct acquisition costs and $6,600 in stock issue costs.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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